HUD acts to halt overcharging of senior citizens Huge processing fees for data prompt ban

Reverse mortgages

March 18, 1997|By COX NEWS SERVICE

WASHINGTON -- Reacting to warnings that several hundred senior citizens have been victims of a growing ruse involving reverse home mortgages, the Clinton administration announced yesterday that it would prohibit federally approved lenders from doing business with companies charging a large processing fee for mortgage information.

The action is designed to "put an end to a scam which has been targeting senior citizens and literally charging them thousands of dollars for nothing," Housing and Urban Development Secretary Andrew Cuomo said. "It's as tough as we can be."

HUD officials said the relatively simple deception came to light within the past few weeks and appears centered mostly on the West Coast. It involves companies -- often doing business as estate planning services -- that charge fees amounting to several thousands of dollars to put seniors in touch with lenders who offer reverse mortgages insured by the Federal Housing Administration.

Reverse mortgages allow people 62 and older to borrow against the value of their homes. The loans are not repaid until the homeowner either sells the property or dies. They are intended to provide cash for elderly homeowners with little income.

Under federal rules, people seeking an FHA-insured reverse mortgage must be represented by an FHA-approved housing counselor. Generally, housing counselors are from nonprofit organizations which provide the service for free or for a nominal fee in the range of $50.

But the mortgage services firms targeted by the government yesterday typically charge a fee of 10 percent of the mortgage amount to put homeowners in touch with lenders.

So far, only a few hundred people out of the roughly 20,000 seniors who have received reverse mortgages have been victimized by the practice, officials said.

But, they noted that there are indications that the companies are on the verge of national advertising campaigns for their services.

During yesterday's news conference at HUD headquarters, Cuomo held a joint telephone call with three senior citizens who said they paid fees ranging from $2,500 to $5,571 for the bogus service.

"I hope you nail them to the cross," said Mickey Kimberlin, of Las Vegas, who negotiated a $2,400 payment to a company that wanted $4,000.

HUD officials have been in contact with local law enforcement agencies and the Federal Trade Commission to determine whether the mortgage services firms violated federal or state laws, Cuomo said. The agency hopes to recover some of the fees through civil suits or criminal prosecution.

To initiate the federal action, FHA Commissioner Nicolas Retsinas wrote letters to approximately 8,000 FHA-approved mortgage lenders ordering them to immediately halt any reverse mortgage transactions involving mortgage or estate planning services. Lenders who ignore the orders risk being barred from the FHA program.

People interested in getting information about reverse mortgages can call HUD toll-free at 1-888-466-3487.

Pub Date: 3/18/97

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